Consumer sentiment up 4.2% in February

Following a 3.5 per cent fall in January, consumer sentiment has returned to a level where “optimists outnumber pessimists”, according to Westpac.

The Westpac-Melbourne Institute of Consumer Sentiment rose by 4.2 per cent in February to 101.3, bouncing back from 97.3 in January.

Westpac chief economist Bill Evans said the 3.5 per cent fall in January was driven by concerns relating to falls in share markets and the oil price.

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Mr Evans pointed out the improvement in sentiment signals that respondents are “relieved” that markets did not experience the same volatility as that seen in early January.

The sub-indexes tracking expectations for economic conditions over the next 12 months fell by 0.6 per cent; expectations for economic conditions over the next five years, however, increased by 4 per cent, Westpac said.

Commenting on the results, Retail Council chief executive Anna McPhee said the bank is wary of being "too positive" about the results.

"There continues to be underlying fragility amongst consumers about economic conditions over the next 12 months and declining confidence about the jobs market, despite the current low unemployment rate," Ms McPhee said.

In measuring family finances in contrast to a year ago, Westpac found this index component lifted by 11.3 per cent in February following a 9.4 per cent fall in January. The component is now up by 3.4 per cent compared to a year ago.

According to Mr Evans, the improvement in consumer sentiment, particularly in respondents’ assessments of their financial condition, means that domestic demand is not significantly deteriorating.

This will ease one of the Reserve Bank of Australia’s foremost concerns, he said.

“[The] report highlights that one of the Bank’s most significant concerns of whether international developments will weigh on domestic demand will need more time to resolve,” he said.

“We are maintaining our call that rates will remain on hold over the course of 2016.”

AMP Capital chief economist Shane Oliver reinforced that there is nothing in the results that argues for an "imminent rate cut".

"While it would be nice to see consumer and business confidence at higher levels, so far they seem to be weathering the bad news regarding share markets and global uncertainty reasonably well," Mr Oliver said.